Flying the Flag: Meeting the FTC’s “Made in USA” claim requirements

Advertisers should proceed with care prior to cloaking their products in red, white and blue, given that these types of claims are regularly the target of FTC, competitor and consumer challenges.

By John E. Villafranco, Megan L. Olsen|September 16, 2013 at 09:30 AM

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Claims about the U.S. origin of a product can be powerful marketing tools, particularly in today’s economy where increasing emphasis has been placed on “buying American” to help create U.S.-based jobs and stimulate U.S. economic growth. “Made in USA” is a typical U.S. origin claim used by advertisers to highlight a product’s domestic origin. A U.S. origin claim, however, can be conveyed in many different ways, including through the use of U.S. symbols, geographic references or any other symbol or statement that suggests a connection between the product and domestic origin.

For unqualified U.S. origin claims, the Federal Trade Commission (FTC) has long held that the product must be “all or virtually allmade in the United States.” While this standard appears to be straightforward, in practice, determining whether a product meets this standard involves evaluating a number of factors related to a product’s creation. Advertisers also should be aware that some states, such as California, have imposed standards that are more stringent than the FTC’s standard for these types of claims, making a U.S. origin claim vulnerable to challenge by consumers and competitors in these states.

FTC’s “All or Virtually All” standard for “Made in USA” claims

The analysis under the “all or virtually all” standard for unqualified U.S. origin claims is very fact-driven, but consists of three essential requirements: the amount of foreign content must be negligible or non-existent; the last substantial transformation of the product must have taken place in the United States; and the final assembly or processing, except for de minimis finishing, must have taken place in the United States. Given the increasing globalization of manufacturing, advertisers should be careful to evaluate the origin of content and processing for each product on a case-by-case basis before determining if an unqualified U.S. origin claim is appropriate.

Domestic content

As the FTC’s “all or virtually all” standard suggests, to make an unqualified U.S. origin claim, the amount of foreign content must be negligible or non-existent. There is no bright-line rule regarding the amount of foreign content that the FTC considers negligible, though the FTC has indicated that an unqualified U.S. origin claim for a product containing 15 to 20 percent foreign content would not be appropriate. To help evaluate the amount of U.S. content, two factors should be taken into consideration: the proportion of the product’s total manufacturing costs that can be attributed to U.S. parts or processing and how far removed any foreign content is from the finished product. The second factor weighs in favor of unqualified U.S. origin claims where foreign content is incorporated early in the manufacturing process of a complex product, such as steel used to make a disc drive frame that is used as an early input in the manufacturing of a computer. The FTC has indicated that foreign content used early in the manufacturing process is often less significant than content that is an important part of the finished product’s functionality, such as the material used to make the processing components of a computer’s hard drive.

Substantial transformation

To meet the FTC’s standard, a product also must have undergone its last “substantial transformation” in the U.S. “Substantial transformation” is a term used by the U.S. Customs and Border Protection (CBP) to determine a product’s country of origin and is defined as a “manufacturing process that results in a new and different product with a new name, character, and use that is different from that which existed before the change.” Like the rest of the determination regarding U.S. origin claims, whether a product has been last substantially transformed in the United States is a very fact-specific determination, but the processing should have been substantial enough to significantly transform a product. Final screwdriver-type assembly, such as assembling previously manufactured major components of a product, is generally not enough to be considered a substantial transformation.

Final assembly or processing

Finally, even for products that are made of virtually all U.S. parts and that were last substantially transformed in the United States, the FTC has indicated that an unqualified U.S. origin claim could be deceptive if that product undergoes its last assembly or processing (beyond de minimis finishing processes) outside of the United States. For example, if final product assembly takes place in another country, this would constitute more than de minimis finishing and an unqualified U.S. origin claim would not be appropriate.

Qualified “Made in USA” claims must avoid overstating U.S. content

If a product is not “all or virtually all made in the United States,” advertisers can still make claims regarding U.S. origin for certain components, processes, or both, provided that the claim is “adequately qualified to avoid consumer deception about the presence or amount of [U.S. or] foreign content.” Qualified claims may be general, indicating simply the existence of unspecified foreign content (e.g., “Made in USA of U.S. and Imported Parts”) or more specific to limit the claim to specific components or processes (e.g., “60% U.S. content,” “Made in USA from Imported Leather,” “Packaged in USA”).

To be adequately qualified, a claim should be “sufficiently clear, prominent, and understandable” to avoid implying that more content or processing is of domestic origin than is actually the case. If domestic content or processing is minimal, or only limited to specific steps in the product’s creation, a qualified claim could be considered deceptive unless the claim is limited to the specific content or steps that are of domestic origin. For example, a general qualified claim that a product is “Made in USA of U.S. and Imported Parts” will likely be considered deceptive where the amount of U.S. parts is de minimus.Qualified claims that explain the specific processes that took place in the U.S. or the specific amount of U.S. content help reduce the likelihood that a U.S. origin claim will be considered deceptive.

Advertisers should proceed with care prior to cloaking their products in red, white and blue, given that these types of claims are regularly the target of FTC, competitor and consumer challenges. But, with careful consideration of the domestic contribution to the end product, advertisers should be able to make truthful U.S. origin claims for numerous different products, provided that the claim is carefully tailored to avoid overstating a product’s domestic origin.

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